Buy Intel: If Not Now, When?

Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Chip giant Intel (NASDAQ: INTC) has had brighter days. While it was once considered one of the kings market in the 90s, it is now finding it increasingly difficult to convince a pessimistic Wall Street that it should be considered anything other than “old tech.” However, when looking at Intel’s prospects more closely, I’m starting to realize that although its valuation suggests darker days are ahead, the company has considerably more value than its shares assume. Investors would be wise to not overlook its potential.

As much as Wall Street wants to dismiss the company’s prospects in favor of sexier names such as Qualcomm and ARM Holdings, it is hard to for me to do the same at this point. I will concede that increased competition in the mobile devices market is indeed cause for concern. Though I have spent most of this year coming to the company’s defense, there is no way to escape the fact that it dropped the ball by its slow response to the smartphone and tablet movement. Plainly, it underestimated the swift decline of the PC industry – a market where its chips dominate all others by having an 80% share. But it’s dying.

However, contrary to popular belief, Intel is not as archaic as some analysts are ready to proclaim. Recent company actions have made it clear that Intel is not yet ready to give up the fight. The company now understands that it has a lot of work to do if it wants to narrow the gap in mobility. To that end, it has been spending billions in R&D in its efforts to make a meaningful dent among consumers as it tries to secure its footing in the table/smartphone chip race. Unfortunately, its efforts and progress continues to fall on deaf ears.

It’s finding it increasingly difficult convincing smartphone designers that its chips can be appealing enough to deserve their attention. But to the extent that Intel has been completely killed off by ARM, Qualcomm or NVIDIA is grossly premature. What’s more, the company is not as far back in the race as it is perceived to be. As its recent earnings announcement demonstrated, its PC business is not doing as poorly as the market anticipated.  Not only has its operating income increased, but investors often overlook that Intel is still dominant not only in its data center business but also in the areas of services.

What should also be taken as a encouraging sign is that as demand for the internet continues to grow, Intel’s server business stand to grow commensurately – an area where the company still ranks No. 1. Additionally, it has several emerging catalysts on the horizon including the launch of Hewlett-Packards Ultrabooks, which were designed to compete with Apples MacBook line. Of course we can forget the launch of Microsoft’s new Windows 8 operating system. Intel is betting on these events to help reignite the excitement it once enjoyed. But does anyone care?

Whether or not the company will be able to remind investors of its tech bubble glory days remains to be seen. But one thing that investors should not expect is that the company will revert back to its previous high growth days. I think expectations such as these are just unrealistic. But investors should expect Intel to remain relevant in the semiconductor race for the coming years. So it makes sense to jump on these shares now as opposed to when demand will be higher.

Bottom line

Whenever a company that was once a high-flyer falls from prominence, one of the most important questions investors should ask themselves is, if not now, when? Not only is the stocks incredibly cheap but there is a lot of good that remains in this company from the standpoint of its capital reinvestments. If given enough time, Intel will prove why it once again belongs amongst the ranks of the elite.

As with anything worth pursuing, for investors, patience is going to be required here before the company can show significant strides in its attempt to secure share in the mobile market. But the company has ample resources to devote to this market and establish its own standing and prove that it can be relevant. It also helps that the company pays a handsome dividend for those willing to wait to be proven right.

Know what you own
When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this
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rsaintvilus was long AAPL at the time of publication and held no positions in any of the other stocks mentioned above. The Motley Fool owns shares of Intel, Microsoft, and Qualcomm. Motley Fool newsletter services recommend Intel and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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